Research Trends and Conclusions: Regulatory Communications 2012
With the benefit of over 14 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the regulatory communications legal marketplace worldwide.
While many practice areas face falling levels of work, activity in the regulatory communications sector continues to be relatively high. This could be attributed to the increasing levels of work deriving from developing regions where lawyers are called upon to advise governments on the implementation of legislative frameworks and the creation of regulatory bodies. However, the creative and innovative nature of the communications sector itself ensures that lawyers are in demand to interpret regulations for new products and devices that are on the cutting edge of existing legal rules. The past year has seen our nominees “very busy” despite the sluggish economy and ensuing slowdown in M&A activity and the range of work that lawyers have faced has been as diverse as ever.
SPECTRUM
One of the most talked-about issues in telecoms throughout our research was the diminishing availability of spectrum. The market for spectrum has been described as a ‘gold rush’ and the level of demand is so high that there has been considerable reworking of the existing spectrum to ensure better efficiency and reallocation of the limited amount that is available throughout Europe and the US.
The US Federal Communications Commission initiated the reconfiguration of the 800MHz band, the largest reallocation of spectrum to date in the US. After the success of this programme it seems likely that the model will be rolled out to other countries.
In July 2011, the UK regulator Ofcom announced that mobile operators would be permitted to buy and sell radio spectrum from different networks to allocate the spectrum more efficiently. This liberalisation of the spectrum rules was a necessary step to ensure that what limited spectrum is available is used to maximum effect. In addition to this, the switchover from analogue to digital has freed up spectrum for reallocation.
The second issue surrounding spectrum is 4G or next-generation mobile broadband technology. While countries such as the US, Japan, Germany and France have held their auctions and are well on their way to implementing the necessary infrastructure, other countries are falling behind.
National regulatory authorities must figure out how to monitor spectrum allocation and competition between the mobile operators. In the UK, the auction has been delayed due to smaller operators demanding that they will not be able to compete if the auction is commenced without the operators giving up their existing spectrum. One model used in Ireland that could be adopted is to re-auction all existing spectrum licences, with all operators entering the auction with no spectrum.
But the problem does not end with allocation; 4G is an unknown entity. Consumer demand as yet is unknown and the existing 3G and upgraded version 3.5G and High Speed Pack Access (HSPA+) is effectively bridging the gap between the generations and allowing mobile providers to get more capacity out of their existing spectrum. Lawyers that we interviewed spoke of the costs involved in implementing 4G infrastructure. With mobile operators not being in dire need of the additional spectrum, and the still difficult economic times tightening their purse strings, 4G is not a current priority but neither should it be underestimated.
CONSOLIDATION
With a difficult economic market due to the euro and US debt crises, the latter part of 2011 has been relatively quiet in terms of M&A activity. Yet, the transactions that have taken place have kept certain lawyers very busy over the past 12 months and among those we spoke to the general consensus was that despite the economy hindering progress in this area, there is an ongoing need for consolidation in the sector that will drive up activity levels in the next few years.
There are several reasons for the predicted rise in M&A activity. One of the reasons is that with many smaller operators not being able to afford next-generation infrastructure, a merger or acquisition will be inevitable for them to remain in the competitive market and as momentum for 4G picks up it seems likely that so will the rate of consolidation.
In addition, mergers can allow operators to regain a competitive edge on new technologies, exemplified by Microsoft’s purchase of Skype, allowing Microsoft to access the “Voice over Internet Protocol” (VoIP) market. These transactions raise competition issues and in many instances must be cleared by the relevant regulatory authorities; this promises to provide a considerable amount of work for lawyers.
Joint ventures are also becoming more popular with increased tightening of spending. Deutsche Telekom and France Telecom are reportedly considering an additional joint venture to the joint venture established in the UK, which will be far broader and span across Europe. As mobile and wireless operators look to expand to the developing world, joint ventures offer a cost-effective method to speed up expansion and alliances in the form of tower sharing are not uncommon, particularly in the developing world.
Another factor lending itself to M&A activity in the sector is the onset of patent warfare between handset companies. In order to protect their devices and software innovation and prosecute those alleged to have copied their products, companies have been building up their patent armouries through M&A activity. An example is Google’s acquisition of Motorola and with battle in the sector just warming up, more strategic moves of this kind look likely.
PRIVACY
Privacy remains a talking point as it becomes an increasingly important issue to consumers. Concern lies around the protection of consumer information and the liability of companies for privacy breaches.
In the past year high-profile infringements have caught the attention of the media. Examples include the breach at Sony when a hacker stole names, addresses and potentially credit card data of over 77 million Sony Playstation users and action taken against Apple by customers claiming that it was recording movements of iPad and iPhone users.
These cases have brought to the forefront questions of the appropriate parameters of privacy and have seen countries looking at their respective privacy laws to judge whether they are adequate. Ground-breaking progress has been made in India with the introduction of a new privacy bill – the first of its kind – in a country with no previous privacy culture. Lawyers that we spoke to in this region are busy preparing clients for compliance with the new bill, and the increased activity in the region is notable in our research, which identifies an additional three lawyers this year.
In the US, senators have proposed a commercial privacy bill of rights act, which would require companies to protect consumer personal information collected online and allow consumers to opt out of having their data stored by businesses. However it seems more likely that action will be spearheaded by the FCC given the time that must be allowed for legislative change in the US and the fast pace of development in the sector.
Similar reforms have been called for in the EU with amendments to the communications package including the Better Regulation Directive and the Citizens Rights’ Directive, the deadline of implementation for which was May 2011. The reform package requires businesses to obtain consent before storing information on users and places a duty on electronic communications services to notify the relevant national authority of any personal data breaches.
With technology increasingly being used to maximise the potential of customer information, privacy issues will become paramount. Using location for marketing and advertising via SMS will result in an increased number of deals being sent through for nearby shops and restaurants to consumers – the risk of these becoming very pervasive is great. Although individuals must consent to their information being used there is concern regarding the level of protection this offers and furthermore questions related to ensuring that third-party platforms are subject to legislation when they operate outside the country where they are being received.
NET NEUTRALITY
Net neutrality has been a concern in the US and Europe for a while, but the profile of this matter has been raised over the last year and there has been widespread debate on traffic management policies. It is widely accepted that internet service providers must adopt some form of traffic management to ensure efficiency, however actions such as blocking or degrading services that are in competition with their own, particularly VoIP, are not permissible and there is unanimity on the fact that there must be transparency on the quality of the service that is advertised and what is actually delivered.
In the US, there is debate over whether the FCC has the authority to regulate internet service providers’ traffic management practices and further challenges are expected to be made to the FCC’s rules, which were published in the US federal register in September 2011.
In Europe, although the communications reform package included rules on transparency and quality of service, there is a perception that the authorities are waiting to decide whether further action needs to be taken.
This leaves a murky situation for businesses to navigate and legal advice is being sought by internet service providers appealing against imposed rules as well as by companies looking to ensure they are compliant with regulations.
LEGAL MARKETPLACE
Looking back over the past four editions, our research reflects a fairly stable marketplace with the dominant firms maintaining a relatively consistent level of listings in our publication. The last year shows a shift in the legal marketplace with the largest number of listings coming from Freshfields for the first time in recent years. However, Bird & Bird remain the firm with the strongest representation in London and home to some of the most highly nominated individuals in our research.
While England and the US remain the key jurisdictions for regulatory communications lawyers, Brazil has increased its presence considerably over the last four years (as shown in the chart on page 6) largely due to the growth in individuals’ disposable income and the subsequent increasing demand for internet and mobile services. Consequently, Latin America is surging forward with advances in telecommunications and media and Brazil, Argentina and Chile all have an increasingly sophisticated telecoms sector. The legal market has reflected this trend and, as shown in the chart overleaf, the number of lawyers in Latin America internationally recognised in the regulatory communications sector far exceeds other developing regions.
As reported last year, the greatest scope for law firms looking to grow their communications regulatory practices remains in Africa and the Middle East. However, the expert counsel being sought by governments and regulators in these regions is mainly European and, as shown in the chart above, the local expertise in these regions is still thin on the ground.
With the EU regulatory model being so well received and in particular the English model, European lawyers have found this a useful strategic route into new jurisdictions. The success of this strategy is apparent, with many firms adding incumbent operators of these jurisdictions to their client lists. Many of the lawyers we spoke to pointed out the potential new clients that this strategy can unlock – highly important when domestic clients are becoming fewer as many larger companies employ their own in-house counsel for the day to day work.
In the US, the boutique firms continue to perform well alongside the full-service firms, evidence that both models are well received by clients. With the forthcoming presidential elections in 2012, regulatory communications lawyers are being instructed to look into the regulations surrounding political advertising, access to television stations and pricing. This area of work will kick into full gear when the primaries are held early 2012 offering a refreshing change to the ongoing regulatory work for M&A activity and new technologies.
With a fast-changing communications market, legal counsel is constantly sought on regulatory and competition issues related to transactions, new business models and day-to-day activities. The creativity and innovation displayed by clients must be matched by equally innovative legal advice in often uncharted waters. Lawyers are required to interpret existing regulations for new products and to help form the laws.
Looking into 2012, spectrum will remain high on the agenda of lawyers and regulatory authorities with many 4G auctions yet to be held. In addition, privacy looks set to become a fundamental concern worldwide as new technologies become more pervasive and customer information becomes ever more valuable to businesses. Many optimists hope that the economy will show signs of recovery that will provide better conditions for M&A activity and encourage more consolidation in the industry, but whatever 2012 brings lawyers in this field can be sure to be challenged.